Malaysia’s palm oil inventory surged to 2.19m as production recovered further and exports remained flattish MoM. Nevertheless, with demand catalyst on the horizon from Indonesia’s B15 biodiesel implementation, we continue to believe that the sector has hit a trough. We remain OVERWEIGHT on Singapore/Indonesian plantation and maintain NEUTRAL on Malaysia on relative valuation.

• Production recovers further. Production continued to recover from very weak January-February period. April production increased to 1.693m tonnes, the highest ever April production. We believe this is still part of a normalisation process and hence the momentum is unlikely to be maintained.
• Exports remain flat. Exports stayed flat MoM at 1.175m tonnes, likely due to deliberate delays in shipments as export duty falls back to zero in May compared with 4.5% in April. On a YTD basis, exports still trail last year’s level by 13.6% compared with 15.8% a month ago.
• Local usage flat. Malaysia’s local usage improved by 7.9% to 250,200tonnes in May, likely ue to continued ramping up of biodiesel usage in East Malaysia. On a YTD basis, local usage is 12.4% higher, down from 20.2% last month.
• Stock level higher on exports. Inventory rose by 17.6% Mo M as exports remained flattish despite rising production. We doubt the market would be overly concerned about the inventory number as April’s low exports are unlikely to be repeated in May as export duty has fallen back to zero. For the first 10 days of May, shipments rose by 44% MoM.
• Catalyst watch. We believe Indonesia’s B15 biodiesel implementation is now inevitable given that President Joko Widodo has signed the regulation for export tax levy. The proceeds will be used to fund the B15 biodiesel implementation, which could soak up 2.7m tonnes of palm oil this year. Our preferred BUYs are First Resources, Astra Agro Lestari and IJM Plantations.